Charts are the main tools for technical analysis. Charts are used to plot a sequence of prices and price movements of an asset on a certain duration. It is just a graphical way of showing how the stock prices have performed. The chart has an x-axis called the horizontal axis and a y-axis called the vertical axis. Generally, the y-axis represents the price and the x-axis represents the time. A chart always represents the history of the volume of trading in an asset.
Types of Charts
In the chart, asset prices such as stock, currency pair, commodity, and so on are in many varieties. It helps to understand a quick way for individual traders or investors to choose one type over another. Charts are used for the following purposes:
- Comfort and Familiarity
- User-friendly and quickly identified
- Underlying purpose
There are different types of charts used in the CFD signals, We should go one by one and summarize with the following:
Tick Charts
Tick charts have a data point which drawn every time the market moves or ticks. It means there is no certain time axis to a tick chart; it is just a short-term trader just focuses on the price action. In the tick chart, you will see a red line and a blue line, red line shows the offer side similarly a blue line indicates the bid side of the market.
Suppose, you want to take a look at a tick chart on MT 4, and MT 5, You could double-click on the relevant currency pair in the Market Watch window to see details.
Point and Figure Charts
This is one of the most popular charts in CFD trading that allowed:
- to filter exchange rate moves,
- identify clear support and
- Resistance levels as well as trade-specific patterns.
This chart allows traders to focus purely on the exchange rate action. Moreover, point and figure charts are typically constructed on graph paper by using an X-axis to fill a rising column of boxes and an O to fill a falling column of boxes. Every box represents a specified value that the exchange rate has to attain to justify marking an X or an O on the graph.
Line Charts
Line charts connect a set of single exchange rate observations taken per period with a straight line. These types of charts are mostly used in closing prices and they also could be drawn through high as well as low prices or opening prices instead. A line chart has an x-axis with fixed time intervals.
Bar Charts
A bar chart is very easy to understand and shows the low, high, close, and open for every period by forming a bar. The high and the low lines are connected with a vertical line with a small horizontal dash shown at the open level protruding to the left. The closing level is shown by a horizontal dash to the left side. However, bar charts have fixed intervals on the x-axis.
It is useful for identifying exchange rate gaps with the range of the first period that does not overlap that of the upcoming period.
Candlestick Charts
Candlestick charts invented by the Japanese offer more information than bar charts because the color of the candle’s body signifies when the market increases or decreases in a particular period.
Take an example, suppose a white body can be used to show a rising or bullish candle whereas a black body can be used to show a falling or bearish candle. The vertical lines that go between the low and the open and between the close and the high are called “wicks”. Apart from that, some candles have long wicks and others have short wicks and this could be a better half when we predict subsequent behavior in the CFD market. Candlesticks charts have predictive value and may be considered chart patterns in their own right so many of them have colorful names like doji, hanging man, the hammer as well as a shooting star.
What is the chart pattern to use when trading?
Chart patterns are important tools for traders that are utilized as part of a trader’s technical analysis. Chart patterns play an integral part while you are looking for market trends and predicting movements for all like newcomers as well as professionals. Traders analyze markets such as CFDs, shares, commodities, and more.